“Annual Earnings of between $30 million and $80 million, in the medium term”.  I defined “medium term” to be around the time that Copper Rand and Corner Bay are at full production. 

Let me guide people (especially new readers) on a journey to see how these numbers are easily substantiated.  The latest (2007) Investor Presentation slide show, now available on the company website can serve as a starting point.

Step 1) Metal prices

Look at the “down play” (my opinion only) earnings targets on slide 21.  The companies own target is for earnings of about $24 million in 2008.  Now look below that (on slide 21), and look at the metal prices they are using. 

The are assuming copper prices of $2.50 USD per pound and a gold prices of $575 USD per ounce.  I think those numbers are low.  With metal prices like we have had recently, earnings could increase by more than 100% from what they listed. 

One important thing to notice is that they build their slide with (in my opinion) exaggerated production costs.  That means the “marginal profit” on each pound copper is lower.  And that means that an increase in metal prices will lead to a large increase in bottom line profits (using their model).

This concept of marginal profit is very common in mining.  If you are new to this sector, I would highly recommend reading up on the idea of "marginal profits".

Here is a simple example.  They assumed average copper production costs of over $2.00 per pound in their model.  (See the red bar on slide 21).  And they used a copper price of $2.50.  So that’s mean profit of less than 50 cents per pound copper.

Now plug in a copper price of $3.40 USD (copper has been around that price recently)

BINGO – AT $3.40 A POUND, PROFITS WOULD INCREASE BY WELL OVER 100%.

That’s the “marginal model” - The higher the cost basis, the more leverage you get.

Step 2) Production Costs

I posted on this this morning.  I think the company is being clever (my opinion only) when it comes to discussing true operating costs.

I think I am justified in writing that, on a public forum, because Campbell’s own documents (Prospectus and earlier slide show) contradict the current numbers. 

If you use lower production costs, the earnings model improves immediately.  Lower costs at Corner Bay could generate another (ballpark) $15 - 20 million in earnings (just from Corner Bay).  You might use the 50/50 split with Nuinsco in that model; it’s up to you how you build your model.

Lower production costs would take away the leverage at the margin, but that’s a different story.  I’ll take the immediate cash, and then give me higher profits form higher metal prices.

My opinion:   Just by using more realistic on-going production costs (costs that I expect, but can not prove); I think earnings would already be above $50 million from those two mines.  Then add in the higher metal prices we see in Point #1.

Step 3)  Joe Mann

I disagree with TJTHEMAN, where he posted (today) that he expects Joe Mann to close.  I think the company has been “holding out on us” for over a year, regarding the potential for Joe Mann.

Click my name to see my posts.  I posted a few days ago, that Campbell was expecting 65,000 ounces of gold a year from Joe Mann, way back in 2001.  They never hit those targets, but they had reason to believe (back then) that the potential was there.

Even today, according to the Annual Report, there are about 2 more years of resources at Joe Mann, using a production rate of around 30,000 ounces a year.   (I pulled that from my memory – I invite people to check that number).

Now we hear about the high grade veins they discovered, and were in no rush to report.

The saga continues. 

I think Joe Mann has several more years in front of it.  And right down the fault line is the Chevrier deposit, with around 600,000 ounces of gold.  Denali has done a fine job posting on Chevrier.

Step 4)

- What about Cedar Bay  (more gold than copper)?

- What about Chevrier  (all gold)?

- What about the other “satellite deposits” (like Merrill Island) that Campbell Management has already mentioned?

- What about the joint venture projects that Campbell is starting to plan with Nuinsco?

What about the royalty income that Campbell will see in the future? (All 3 royalties are gold production).

Have I made my case?  I actually think that Campbell could generate over $100 million in earnings in the “medium term”.

If you apply even a moderate PE ratio to a target of $100 million, you can easily get a share price of well above $5.00 a share – well above.